The chancellor is required to make a new economic forecast in the Budget.

He has already prepared the ground for lowering his economic growth forecasts by admitting that the Treasury underestimated the depth of the recession.

He could predict an economic contraction of as much as 3.5% of GDP this year - much worse than his earlier forecast in November's pre-Budget report of a slowdown of between 0.75% to 1.25% in 2009, with economic growth recovering to between 1.75% and 2.25% in 2010.

That would be in accord with independent forecasters who see the UK economy contracting by 3.7% in 2009 and growing by just 0.3% in 2010.

Government borrowing estimates are also likely to balloon.

The chancellor's prediction of a public sector deficit of £118bn next year (2009-10) could rise to £150bn, according to the Institute for Fiscal Studies, while independent forecasters on average predict a deficit of £160bn.

Many commentators warn that the biggest factor in paying back the deficit will be the length of the recession. A deeper recession would push back the date for any improvement in the cumulative total of public sector debt, which could reach 80% of GDP by 2016.

The government is likely to announce more tax increases and spending cuts to take effect from 2011 or 2012 to meet the growing budget deficit.

It has already been announced in the pre-Budget report that earners over £100k will get lower personal allowances in 2011.

A new 45% higher income tax rate is proposed for earnings above £150,000 from April 2011 - hitting about 1% of tax payers.

And from April 2011, all rates of National Insurance contributions will be increased by 0.5% for all employees and employers.

There is also speculation about increasing the standard rate of VAT, which is due to return to 17.5% in December.

Accountants Deloitte calculate that an increase from 17.5% to 18.5% would raise £5bn year for the government. Ernst and Young see VAT going up to 20% over the next few years.

Additional spending cuts of up to £15bn have also been mooted by the Treasury, based on efficiency savings, to help reduce the Budget deficit.

The Institute of Fiscal Studies says one possibility is a five-year real freeze on current spending by all government departments.

In the pre-Budget report, the government brought forward £3bn of capital expenditure to this year from 2010/2011. The funds would be spent on roads, schools, social housing and energy investment.

Public sector pay could be another target. Prime Minister Gordon Brown has already announced that some top public servants will see their pay rises capped at 1.5% next year, and the Conservatives say curbing public sector pay should be a priority.

With the government keen to encourage people to save rather than borrow, there may be some tax changes to help savers.

Deloitte say the best thing would be to abolish 20% tax on the interest on savings. While average interest rates are low, that would not cost government a lot - about £600m with average rates below 1%.

The chancellor could introduce a special increase to pensioners' tax allowances , which would make more of their income tax-free.

Another possibility is increasing the limit on a cash ISA. At the moment, the amount allowed in this tax-free investment stands at £3,600 per year.

The Conservatives have described savers as 'the innocent victims of the recession'. They have backed calls to scrap the tax on savings and have said they want to raise the tax-free allowances - the level of income on which no tax is paid - by £2,000 for everyone over 65.

The last Budget temporarily raised the starting level at which a house buyer had to start paying stamp duty from £125,000 to £175,000. With the housing market still depressed, this is likely to be extended.

The chancellor is also due to give his full response to the call in the Crosby report for additional government funds to kick-start the mortgage market and meet the shortfall in mortgage funding.

And he will give further details of the schemes already underway to aid those who are in danger of losing their homes, as well as further investment in building more council housing.

The CBI is arguing that the government should use the recession as a reason to boost green technologies in ways which could also stimulate commerce.

The government has already announced that it will provide a £5000 subsidy for the purchase of electric and hybrid cars, as well as providing £20m for local councils to install electric vehicle charging points.

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